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East West says it can handle turbulence in China-US relations


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East West says it can handle turbulence in China-US relations

In a fourth-quarter 2016 earnings call Jan. 26, the CEO of Pasadena, Calif.-based East West Bancorp Inc. said the company, which bills itself as a "financial bridge" bank with operations in the U.S. and China, would be able to weather any turbulence from a possible trade war between the two countries.

"We are here actually helping many of our U.S. clients and also Chinese clients navigate through this next four years," East West CEO Dominic Ng said near the end of an uninterrupted 12-minute answer to a question about risks in U.S.-China relations.

With the inauguration of Donald Trump as the 45th president of the United States, uncertainty over U.S.-China relations in a protectionist administration could create choppy waters for East West and its $34.8 billion in total assets. The company prides itself on joint business operations through 130 locations in the United States and in China, Hong Kong and Taiwan.

While Ng added that the direction of the new administration is still hard to chart, he asserted that souring relations between the U.S. and China would be unlikely to hurt the company given its balance sheet and business model. Ng used tariffs as an example, noting that if Trump tried to tariff steel, aluminum and other commodities, East West wouldn't face "much major impact" since the company isn't exposed to "those old economies businesses."

In another example, Ng said that the bank's $25.5 billion total loan portfolio has only $1.1 billion of its loans in China. This limited exposure, Ng said, is intentional for the purposes of containing credit issues that could come from any economic headwinds in China.

Overall, Ng did see short-term volatility from a possible U.S.-China trade war that, if anything, would create economic conditions that would affect East West as much as any other company in the United States.

"If there is a trade war and then also there is maybe some political maneuvering, I think that's going to cause the entire global market to kind of have a melt down," Ng said. "And that's the part [where] we're just going along with everybody else."

Ng's economic predictions came as the company reported fourth-quarter 2016 net income of $110.7 million, or 76 cents per share, compared to the prior year's net income of $91.8 million, or 63 cents per share. The S&P Capital IQ consensus estimate for normalized EPS in the latest quarter was 71 cents.

East West credited the performance to quarter-over-quarter loan growth of 3.1%, spurred by energy lending in Texas, entertainment lending in Los Angeles and commercial lending in New York and Boston. The company also saw growth in its Hong Kong operations through US-based cross-border clients interested in investment opportunities abroad. To support that loan growth, East West was able to boost its total core deposits by 5.6% quarter over quarter.

The company recorded noninterest expenses of $150 million for the fourth-quarter of 2016, a decrease of 12% from $171 million in the third quarter. The company credited a reversal of $13.4 million in legal accruals from an unnamed lawsuit.

The decrease in expenses comes amid expectations that East West is continuing to wrangle regulatory costs associated with a 2015 agreement with the Federal Reserve Bank of San Francisco over compliance with Bank Secrecy Act and anti-money laundering regulations. In its third-quarter 2016 earnings call, East West reported it had made "satisfactory progress" and said its consulting costs would impact 2016 before being substantially reduced in 2017.

Ng said East West now has a "great system in place" and is awaiting regulatory validation through a full exam sometime in July and August.